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May 15, 2013

On May 10, the Federal Circuit handed down a much anticipated en banc ruling regarding the patent
eligibility of computer-implemented inventions under 35 U.S.C. § 101. In a per
curiam opinion that is perhaps the most important § 101 jurisprudence since
the Supreme Court's Bilski v. Kappos
and Mayo v. Prometheusdecisions, a
plurality of judges set forth procedures for determining whether claims that
recite an abstract idea or a law of nature meet the requirements of this
section. While the overall effect of
this case remains to be seen and is likely to be a subject of heated debate, this
decision has the potential to impact both patent litigation and prosecution.

In 2007, CLS Bank filed a declaratory judgment action against Alice Corp.,
contending that, among other things, Alice's U.S. Patents Nos. 5,970,479,
6,912,510, and 7,149,720 were invalid under § 101. Alice filed counterclaims alleging
infringement of these three patents. Later, Alice's U.S. Patent No. 7,725,375 was added to the mix, and the
parties respectively asserted invalidity and infringement contentions for this
patent as well.

All four patents are from the same family and "share
substantially the same specification." The plurality described the claimed subject matter as:

[A]
computerized trading platform used for conducting financial transactions in
which a third party settles obligations between a first and a second party so
as to eliminate "counterparty" or "settlement" risk . . .
. Settlement risk refers to the risk to each party in an exchange that only one
of the two parties will actually pay its obligation, leaving the paying party
without its principal or the benefit of the counterparty's performance. Alice's
patents address that risk by relying on a trusted third party to ensure the
exchange of either both parties' obligations or neither obligation.

Between the four patents, method, computer-readable medium
(CRM), and system claims were asserted. The
parties stipulated that all claims, including the method claims, require "a
computer including at least a processor and memory" and electronic
implementation, even though the representative method claim analyzed by the
Federal Circuit did not literally recite such a requirement.

The District Court held that all asserted claims failed to meet
the requirements of § 101, and thus were invalid. Particularly, the District Court concluded
that the method claims were directed to an unpatentable abstract idea, and that
the CRM and system claims would similarly preempt all practical applications of
this idea, despite those claims falling under a different statutory category.

On appeal, a Federal Circuit panel reversed the District Court
on all counts, holding that all claims, including the method claims, were patent
eligible under § 101. CLS petitioned the
full Federal Circuit for review, which was granted. Sitting en
banc, seven of the ten judges overruled the panel and affirmed the District Court's ruling regarding the method and CRM claims. However, this majority did not agree on the
rationale for their conclusion. Further,
five of the judges found that the system claims were unpatentable, while the
other five concluded that these claims passed muster under § 101. Additionally, eight of the judges indicated
that the method, CRM, and system claims must rise or fall together. Consequently, the precedential value of his
decision, especially with respect to the system claims, may be limited.

Below, Judge Lourie's plurality concurrence is discussed. Joining him were Judges Dyk, Prost, Reyna,
and Wallach. The other concurrences and dissents
will be examined in subsequent posts.

Judge Lourie admitted the difficulty of analyzing patentability
under § 101, and acknowledged the need for a more practical approach to this
analysis:

While simple
enough to state, the patent-eligibility test has proven quite difficult to
apply. The difficulty lies in
consistently and predictably differentiating between, on the one hand, claims
that would tie up laws of nature, natural phenomena, or abstract ideas, and, on
the other, claims that merely embody, use, reflect, rest upon, or apply those
fundamental tools. For example, deciding
whether or not a particular claim is abstract can feel subjective and
unsystematic, and the debate often trends toward the metaphysical, littered
with unhelpful analogies and generalizations.
What is needed is a consistent, cohesive, and accessible approach to the
§ 101 analysis -- a framework that will provide guidance and predictability for
patent applicants and examiners, litigants, and the courts. (Citation omitted.)

Judge Lourie then turned to the inevitable overview of Supreme
Court decisions impacting § 101 as guideposts for this analysis. In an example of judicial foreshadowing, he
viewed Benson, Flook, Deihr, and Bilski through the lens of Prometheus. In particular, he focused on the judicial
exception to patentable subject matter when the claims at issue incorporate
abstract ideas or laws of nature. Then,
he applied Prometheus's approach for
analyzing such claims, with special concern for whether a claimed invention
would effectively preempt other uses of any potentially abstract idea recited
therein.

Particularly, Judge Lourie set forth a four-step analysis for
patent eligibility under § 101 based heavily on Prometheus. These steps are
as follows:

1) Determine "whether the claimed invention
fits within one of the four statutory classes set out in § 101." In other words, is the invention directed to
a process, machine, manufacture, or composition of matter?

2) Determine whether "the
claim pose[s] any risk of preempting an abstract idea." Or, does the claim incorporate an abstract
idea?

3) If an abstract idea
is implicated by the claim, then "identify and define whatever fundamental
concept appears wrapped up in the claim so that the subsequent analytical steps
can proceed on a consistent footing."
Judge Lourie indicates that carrying out claim construction activities
prior to this step may be helpful, but is not required.

4) Finally, "[w]ith
the pertinent abstract idea identified, the balance of the claim can be
evaluated to determine whether it contains additional substantive limitations
that narrow, confine, or otherwise tie down the claim so that, in practical
terms, it does not cover the full abstract idea itself."

Judge Lourie refers to this final step as "inventive
concept" analysis. He explicitly
states that this "balance of the claim" -- the human contribution -- need
not require inventiveness in the same sense that claims must be novel and
non-obvious under sections 102 and 103, respectively. However, he does not clearly differentiate
how this inventive concept analysis would differ in practice from, say, an
obviousness analysis. Instead he asserts
that:

An "inventive
concept" in the § 101 context refers to a genuine human contribution to
the claimed subject matter . . . . [A] person cannot truly "invent" an
abstract idea or scientific truth. He or she can discover it, but not invent
it. Accordingly, an "inventive concept" under § 101 -- in contrast to
whatever fundamental concept is also represented in the claim -- must be a product
of human ingenuity.

Compared to novelty and non-obviousness analyses "which
consider whether particular steps or physical components together constitute a
new or nonobvious invention," Judge Lourie states that the inventive
concept analysis "considers whether steps combined with a natural law or
abstract idea are so insignificant, conventional, or routine as to yield a
claim that effectively covers the natural law or abstract idea itself." But, in practice, this distinction may easily
become blurred, and seems to advocate that claims be considered piecemeal under
§ 101 rather than as a whole.

Furthermore, at first blush, Judge Lourie's differentiation
between discovery and invention seems like an aesthetically pleasing dichotomy -- after all, one could say that Pythagoras didn't invent the Pythagorean Theorem, but he did discover it. However, Judge
Lourie went on to point to four potentially subjective factors that would weigh
against whether the human contribution to the claimed invention rises to such a
level that the claim as a whole meets § 101 requirements:

1) Is the human contribution necessary to every
practical use of the abstract idea and therefore is not truly limiting.

2) Does the human
contribution "amount to more than well-understood, routine, conventional
activity previously engaged in by researchers in the field?"

3) Does the human
contribution consist of token or trivial limitations, such as insignificant
post-solution activity?

4) Is the human
contribution a "field-of-use limitation . . . where the claim as written
still effectively preempts all uses of a fundamental concept within the stated
field?"

Applying this approach to the patents in suit, Judge Lourie
found that all claims failed under § 101. The representative method claim was found to be directed to the
reduction of settlement risk using a third-party intermediary. As such, Judge Lourie concluded that this
claim recited an abstract idea -- a "disembodied concept, a basic building
block of human ingenuity, untethered from any real-world application." Therefore, he turned to whether the remaining
aspects of the claim added anything of substance. He concluded that they did not.

Notably, this method claim did not recite any required physical
structure. It did not include a memory,
a processor, transmitters or receivers, or any other computer component or
peripheral. Despite the parties'
stipulation that the claim was computer implemented, Judge Lourie indicated
that such a limitation was "insignificant post-solution activity" and
that "simply appending generic computer functionality to lend speed or efficiency
to the performance of an otherwise abstract concept does not meaningfully limit
claim scope for purposes of patent eligibility." Thus, he concluded that "[a]s in Bilski, upholding Alice's claims to
methods of financial intermediation would pre-empt use of this approach in all
fields, and would effectively grant a monopoly over an abstract idea."

Judge Lourie similarly found the representative CRM claim
unpatentable as well, despite its recitation of a tangible article of
manufacture, which would ostensibly be a physical device. This claim essentially recited the invention
of the method claim, but in CRM form.
Judge Lourie asserted that "under § 101 we must look past drafting
formalities and let the true substance of the claim guide our analysis." Applying this analysis he concluded that the
CRM claim was actually drawn to "the underlying method of reducing
settlement risk using a third-party intermediary," and that it was merely
a method claim in the guise of a device claim. He further warned that one should not allow a competent draftsman to "endow
abstract claims with patent-eligible status."

The representative system claim also fell under Judge Lourie's
analysis. This claim recites ample
structure -- including a data storage unit and a computer that receives data,
performs operations on the data, and generates an instruction to an "exchange
institution." Nonetheless, Judge
Lourie found that the similarity between the method and system claims required
application of the same abstract idea analysis for both. In this case, the question was whether "the
limitations of the claim, including any computer-based limitations, add enough
beyond the abstract idea itself to limit the claim to a narrower,
patent-eligible application of that idea."
Viewing the "generic" computer structure recited by the claim
sufficient to "encompass any device capable of performing the same
ubiquitous calculation, storage, and connectivity functions required by the
method claims," Judge Lourie found that they did not because this
structure did not provide a significant "inventive concept." Summing up, he wrote that:

We are not
here faced with a computer per se. Such
are surely patent-eligible machines. We
are faced with abstract methods coupled with computers adapted to perform those
methods . . . . Abstract methods do not become patent-eligible machines by being
clothed in computer language.

In order to properly seek protection of their inventions,
Applicants need to understand the requirements of § 101. Despite the plurality's cry for "a
consistent, cohesive, and accessible approach to the § 101 analysis," at
best, a handful of dirt has been tossed into already muddied waters. Judge Lourie's procedures for § 101 analysis
allow significant opportunities for subjectivity on the part of the fact
finder. As a result, an Applicant's best
practice for obtaining suitable protection of its computer-implemented
technologies remains unclear. A more
detailed discussion of the open questions coming out of this decision will be
the subject of future posts.

CLS
Bank Int'l v. Alice Corp. (Fed.
Cir. 2013) (en banc)Opinion for the court per
curiam; concurring opinion by Circuit Judge Lourie, joined by Circuit
Judges Dyk, Prost, Reyna, and Wallach; concurring-in-part and
dissenting-in-part opinion by Chief Judge Rader, joined by Circuit Judge Moore,
and by Circuit Judges Linn and O'Malley as to all but part VI of that opinion;
dissenting-in-part opinion by Circuit Judge Moore, joined by Chief Judge Rader
and Circuit Judges Linn and O'Malley; concurring-in-part and dissenting-in-part
opinion by Circuit Judge Newman; dissenting opinion by Circuit Judges Linn and
O'Malley; additional reflections by Chief Judge Rader.

Comments

Until Benson and Flook are overruled (don't hold your breath), the mental gymnastics, bloviation and litigation arguing for and against the "abstractness" of an idea will continue unabated - no objective standard is possible, and would-be patentees will never have certainty.

Flook, in particular, by requiring that even a new and useful algorithm must be treated as if it were a well-known part of the prior art, was a terrible decision. The Court's antipathy toward a limited 20-year "preemption" of a process that did not previously exist is hard to fathom.

Should I discover a quick (new, and very useful) method of finding large prime numbers, Benson and Flook encourage me to keep it hidden, using it only as a trade secret. If I can sell lists of big primes to the cryptology industry, the advancement of science and technology can wait, while I profit, perhaps indefinitely, from my monopoly on the method -- the very thing the patent statutes were intended to prevent.

It seems like more than just one handful of dirt just got tossed in, but time will tell. The "inventive concept", whatever that is, could easily inject endless, subjective (metaphysical) complexity and cost for patent applicants. Once examiners catch on to this precious gem, hindsight on top of "inventive concept" could turn out to be a real monster. Regardless of Lourie's admonition that this isn't a 103 type obviousness situation, it is easy to see how 101 analysis could become exactly that. Language like "well-understood, routine, conventional activity" will set up a 103 type
mind set for most examiners and maybe appeal boards and judges.

Of course this hasn't gone to the supreme court yet. If they take it up, they just might shoot down Lourie's 4-step analysis as too "rigid", just like it disapproved of rigidity in 103 analysis when it shot the quite effective TSM test to smithereens and replaced it with chaos (at least, chaos is the net effect of KSR in the chemical area), e.g., there is always a "finite number" of ways to get the job done.

The courts just can't seem to nail this stuff down. The splits in thinking in this case is an excellent example. Is it time for the patent bar to come up with its own test for 101 (and 103), send the language to congress and hope that gets a fair hearing and some traction? There has to be another way to come up with something
sufficiently workable, not necessarily perfect. Or, is that thought just the height of naivety, given the profound splits in the bar itself? If it is naive, it sort of raises the question of what good is the patent bar and congress in the face of what appear to be real problems that the courts can't seem to fix? Whose responsibility is this?

James Demers states: "encourage me to keep it hidden, using it only as a trade secret... the very thing the patent statutes were intended to prevent."

Mr. Demers, I am not sure you are aware that Congress does not believe that the trade secret route is in fact not combinable with the patent route. There are parts of the America Invents Act that speak directly against such a belief.

"An "inventive concept" in the § 101 context refers to a genuine human contribution to the claimed subject matter . . . . [A] person cannot truly "invent" an abstract idea or scientific truth. He or she ---can discover it----, but not invent it. Accordingly, an "inventive concept" under § 101 -- in contrast to whatever fundamental concept is also represented in the claim -- must be a product of human ingenuity."

Someone should inform this court that 35 USC 101 reads as follows:

Whoever invents ---or discovers--- any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

so...DISCOVERIES ARE PATENTABLE.

Moreover, I would respectfully submit that there is nothing TO discover BUT natural laws and products of nature.

So... you know.. Maybe stop legislating from the bench and stick to what the statute says....

"Should I discover a quick (new, and very useful) method of finding large prime numbers, Benson and Flook encourage me to keep it hidden, using it only as a trade secret. If I can sell lists of big primes to the cryptology industry, the advancement of science and technology can wait, while I profit, perhaps indefinitely, from my monopoly on the method -- the very thing the patent statutes were intended to prevent."

Don't trade secrit lawls already promote this? Or are you afeared that someone will independently invent in your scenario?

"1) Determine "whether the claimed invention fits within one of the four statutory classes set out in § 101." In other words, is the invention directed to a process, machine, manufacture, or composition of matter?

2) Determine whether "the claim pose[s] any risk of preempting an abstract idea." Or, does the claim incorporate an abstract idea?

3) If an abstract idea is implicated by the claim, then "identify and define whatever fundamental concept appears wrapped up in the claim so that the subsequent analytical steps can proceed on a consistent footing." Judge Lourie indicates that carrying out claim construction activities prior to this step may be helpful, but is not required.

4) Finally, "[w]ith the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.""

If he said that then he pretty much plagerized one of my posts on PO a year ago.

I'm really going to be honest with you guys though, I have been applying this standard for several years now, and I have yet to have seen a really really difficult case pass my desk under the standard announced by Lourie. It really isn't that hard to evaluate claims under the standard. Sure, it takes some time sometimes (rarely), but any competent person should be able to get it.

Les said: "there is nothing TO discover BUT natural laws and products of nature."

Interesting. It does seem to be the case that courts largely read discoveries out of the statute. Discoveries just don't come up much (if at all). The same might be said for the phrase "or any new and useful improvements thereof" as applied to discoveries.

If that is true, then logic might extend to holding that a new natural product compound is not patentable subject matter, even if the clever draftsman says it is in "isolated and purified form" or whatever language is in vogue. One can coherently argue that a newly described natural compound is a law of nature, e.g., the BRCA1 and BRCA2 genes, and you cannot claim it, even though it is a composition of matter.

Presumably section 101's sanction of compositions of matter trumps the law of nature argument. But does it? Other mental gymnastics are not hard to envision under the circumstances. When subjectivity/ metaphysics replace objective standards in laws governing technology (and most everything else?), anything can happen for any reason or for no reason that anyone other than the court panel and its adherents can understand.

It feels uncomfortably like the wheels are off the cart and have been for quite a while. There is definitely something here for congress (and/or the bar?) to fix, whether they can be convinced of that or not.

"3) If an abstract idea is implicated by the claim, then "identify and define whatever fundamental concept appears wrapped up in the claim so that the subsequent analytical steps can proceed on a consistent footing." Judge Lourie indicates that carrying out claim construction activities prior to this step may be helpful, but is not required."

Distill the invention down to a "Gist", in a manner contrary to settled law (see MPEP 2142.02(II)). Declare the "gist" abstract, as most gists, by their nature are.

4) Finally, "[w]ith the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself."

Finally, belittle and declare the elements of the claim (such as shadow account establishment and manipulation)that narrow and confine the "gist" so that it does not cover the full extent of the full abstract idea (escrow) as merely claim drafters art.

There you go, everything is abstract and nothing is patentable, just the result we wanted.

Looking back, I think the Federal Circuit's Machine-or-Transformation test wasn't as bad as it seemed at the time. The Supreme Court sure as heck wasn't able to come up with anything better. When one looks at the CLS Bank opinions it doesn't strike me that the CAFC is struggling with the technology or with the claims in that case. The only things they're struggling with are the Supreme Court's unclear, internally inconsistent directives. So I wonder what's the bigger problem - business method applicants, or a Supreme Court that thinks Section 101 is fully explicable in terms of swinging baseball bats and baking chocolate chip cookies. I cannot understand why anyone would believe the Supreme Court will repair what it has wrought. Let's go to Congress instead.

I was reading and nodding my head in agreement with everything you were saying up until the Congress part.

Granted, that would be the appropriate avenue, but given the AIA, I wonder to myself if that path would actually help create a vibrant and viable patent system (with the special interest wrenches thrown in), and I remain...

"I am not sure you are aware that Congress does not believe that the trade secret route is in fact not combinable with the patent route."

Sifting through that triple negative is a chore - I'm not sure I don't understand what you're not saying. ;-)

The purpose of the patent statutes is to encourage disclosure, and discourage trade secrets. My point is simply that, for the inventors of "abstract" processes, Benson and Flook turn the incentive upside down: by taking away the patent option, they discourage sharing such discoveries with the public.

I do not agree with your black and white statement separating trade secrets and patents - not after the passage of the AIA and severl cases preceeding that passage that acknowledged the court's view that the two are not mutually exclusive.

To put it directly, the AIA incorporates and acknowledges the benefits of trade secrets, even creating (actually expanding - but greatly so) a pseudo-patent-like 'right' in the vehicle of Prior User Rights.

I do agree with you that it is difficult on a conceptual basis to accept what both the courts and the legislature have apparently accepted. But regardless of my view on the matter, such is the law, and such an intepretation of the law has been accepted by the courts.